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by Maxime Rieman
It’s been almost fifty years since the Equal Pay Act of 1963 was enacted, but still we face a gender-based pay gap...and most people don't understand the reasons why. Unfortunately, this is not a simple answer to determine, as the salaries of individual employees are influenced by a variety of factors such as education, performance, and region. In addition, most of the time, the only figures published are the averages, which can be heavily skewed.
In 2010, the average ratio of women’s to men’s earnings overall was 81.2 percent. This ratio varies drastically across various occupations, with some stereotypes being evident; women earned 112.1% of the average man’s compensation in the food service industry, while only earning 58.4% of what men made as personal financial advisors.
A recent study of the total compensation of chief executives at 500 of the largest companies in America found that median compensation for female CEOs exceeded median compensation for male CEOs by 13% in the most recent fiscal year. The female CEOs of S&P500 companies earned a median compensation of $11.1 million while the male CEOs earned $9.8 million median compensation. Looking at the averages, on the other hand, would tell a much different story. The average compensation for CEO men, $12.9 million, exceeded the average compensation for CEO women, $11.7 million. Bear in mind this does not indicate that a typical male CEO earned more than a typical female. The two highest earning men raked in a total compensation of over $500 million, and brought the male CEO average up over a million dollars.
It would be impossible to know exactly why the women’s compensation is greater than the men’s at the executive level without understanding each CEO's background and value to his or her company. Nevertheless, it seems to me that the explanation is related to the low level of female participation at the executive level. Of the five hundred companies considered in the study, only 19 of the chief executives were women.
With women representing almost half of business school graduates, but holding just four percent of the S&P500 CEO positions, only the most impressive businesswomen make it to the boardroom. If this is the case, the argument could be made that CEO women of S&P500 companies are the extreme outliers, and are therefore underpaid relative to their outlier male peers.
Just as the male CEO set contains superstars with household names, like Larry Ellison ($77.6 million) and Les Moonves ($69.9 million), the female CEO set similarly contains familiar names like Meg Whitman ($16.5 million), Indra Nooyi ($17.1 million), and Carol Bartz ($16.4 million). Yet the male superstars' compensation is greater by several multiples.
One argument that is frequently used to explain the discrepancy in pay between men and women is that, since compensation should be tied to performance, it is fair for men to receive greater compensation if they provide greater benefit to their company. Similarly, a man should earn more than a woman if the woman needs to take a maternity leave, since she is unable to fulfill the same duties during that period. However, for companies with positive earnings, female CEOs were compensated an average of $13,005 for every million of pre-tax income their company earned last year. Male CEOs whose companies had positive earnings took home an average of $15,935 per million earned, 23% more than the women.
Another reason that’s commonly cited as to why women earn less is that women are less likely to negotiate. We can only speculate as to the reason (women are simply happy to get the job, men have a greater degree of self-confidence), but men consistently ask for greater starting salaries and request raises more often.
Recently Marissa Mayer (employee number 20 at Google), joined Yahoo as their CEO, and received an enormous amount of press for her compensation package, which was valued at somewhere between $71 and $120 million. This may seem like an enormous figure, but it isn’t even a third of the compensation received by Apple’s Tim Cook, which came to $378 million.
The 19th amendment, which stated that women have equal rights as men, was signed into effect nearly a century ago. Next year will be the semi-centennial of the Equal Pay Act. Should people still be so shocked when a woman is the appointed head of a company? Or are we working against equality whenever we are surprised to see a woman earning more than a man?
:: photo of Marissa Mayer courtesy of Magnus Hoij, via Creative Commons license ::
Maxime Rieman is a Financial Markets Analyst at NerdWallet.